Bank of England tipped to slash rates TWICE in two months as tax hikes and US tariffs batter the economy

Importance Score: 75 / 100 🔴

Amid concerns about economic deceleration, the Bank of England is under pressure to act. Governor Andrew Bailey acknowledged the significant threat to growth presented by global trade disruptions, sparking speculation among investors about potential interest rate reductions. Financial markets are now pricing in the possibility of back-to-back rate cuts, reflecting worries over the impacts of tax increases and international trade policies on the UK economy.

Speculation Surrounds Potential Interest Rate Reductions

Governor Acknowledges Trade Turmoil Impact

Andrew Bailey conveyed his concern regarding the possible consequences of trade instability on economic expansion. His remarks, delivered during a recent event in Washington, coincided with emerging data indicating that the economy is being impacted by new fiscal measures and international trade levies.

Investors Anticipate Rate Cuts

As anxieties surrounding a possible economic contraction intensify, investors are wagering on consecutive interest rate decreases in May and June, which would be advantageous for both households and enterprises seeking more affordable borrowing options.

• This action would lower official interest rates from the existing 4.5 percent to 4 percent within a two-month period.
• Financial markets also foresee a greater than 50 percent likelihood of rates dropping to 3.5 percent by the close of the year.

Economic Indicators Signal Potential Downturn

Bank of England Weighs Options

Bailey, participating in the International Monetary Fund’s spring meetings, stated that the Bank must consider the potential impediments to growth emanating from international trade disputes. This assessment will be crucial as the Bank prepares for its upcoming rates meeting in the next few weeks.

Impact of Global Trade

He noted that the UK’s standing as an open economy requires consideration not only of tariffs on British goods but also their broader influence on global economic health.

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S&P Global Report Highlights Concerns

A recent report from S&P Global indicated a decline in activity among British firms, with its index registering 48.2 in April. This figure represents the lowest point since November 2022 and a decrease from 51.5 in March, falling below the critical threshold of 50, which distinguishes growth from contraction.

Expert Analysis

Chris Williamson, chief business economist, stated, “The slump in confidence and decrease in output during April raise concerns about the near-term economic outlook and increase pressure on the Bank to lower interest rates again.”

Factors Contributing to Economic Pressure

Decline in Exports

Exports experienced the most significant contraction since May 2020, precipitated by the imposition of new tariffs.

Rising Business Costs

Business expenditures have escalated at the most rapid pace in over two years, influenced by recent tax adjustments and hikes in the minimum wage. S&P Global also cautioned about significant workforce reductions.

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